These days, mention Cuba, and most people conjure up images of a cigar-smoking Fidel Castro decked in army fatigues or a terrified Elian Gonzalez staring down the barrel of a federal marshal's rifle. For most Americans, sun, sand and relaxation are not immediate associations. But once upon a time, they were.
Before being saddled with economic embargos and restrictions for being the"ominous communist dictatorship in the United States' backyard," Cuba served as the playground for rich, famous and illustrious Americans.
But with the Cold War safely entombed in high school history books, speculation about economic, political and social reform in Cuba has begun to grow. Some even expressed measured optimism last summer, when 80-year-old Fidel Castro transferred power to his younger brother, Raul, after undergoing intestinal surgery. While the winds of change remain calm in Cuba, the move prompted some to ponder the development of an island that's relatively unspoiled.
A return to Cuba would certainly be enticing for Americans. It's the largest island in the Caribbean and boasts 100 miles of white sand beaches, largely unbroken by resorts and hotels. An archipelago, it has more than 4,000 keys, most of which have never been dived. And then there is the island's culture, cuisine and overall allure.
But even if it did open up, most experts agree that development wouldn't happen overnight.
"I think Cuba, if it were opened and American companies could invest, would need to get in the queue and demonstrate there is economic utility to doing business there," says Scott Berman, principal at PricewaterhouseCooper's Miami-based U.S. Hospitality and Leisure Group."The hotel companies are clearly very much internationally focused-look at what they are doing in China and India-Cuba is really not all that difficult, given how close it is to the United States."
That Kind of Town
There's clearly something enticing about hotel development in Cuba. For many, the island's appeal lies in both its illustrious and proud past, evidenced in the mix of baroque and neo-classical structures in Old Havana, which was declared a World Heritage site in 1982. For others, it's the beaches, cigars and rum.
Christopher Columbus introduced Cuba to the European stage after his inaugural exploration of the Americas in 1492. Spain kept the island under its thumb for 388 years, and its colonial period was marked by prosperity-especially in Havana-thanks to its sugar, tobacco and coffee.
The United States' relationship with its neighbor strengthened throughout the 19th century and was solidified in 1898, when U.S. troops landed on the island to help in its quest for independence. In the ensuing Spanish-American War, Cuba gained its sovereignty, but as part of its new constitution, the United States retained the right to intervene in Cuban affairs and to supervise the country's finances and foreign relations. Cuba also agreed to lease to the United States a base at Guantanamo Bay.
Spurred by Prohibition, the 1920s saw an influx of American tourists to Cuba because of its lax island lifestyle, and from 1915 to 1930, Havana welcomed more tourists than any other Caribbean destination. However, when the Great Depression, World War II and the end of Prohibition arrived, the island saw a drop in the number of visitors.
Cuba once again reclaimed its status as a vacation mecca in the 1950s, and tourist numbers grew at a rate of 8 percent a year. Its close proximity to the United States once again drew swarms of Americans, who made up 89 percent of its total visitors in the 1950s. The island quickly earned the title"Latin Las Vegas" for its glamour, gaming and popularity with American organized crime bosses. The capital became one of the main routes into the States for the narcotics trade.
While Americans soaked up the fun and sun of Cuba, internally, many of its citizens suffered under the harsh and corrupt regime of Fulgencio Battista. Opposed to the regime, a young revolutionary named Fidel Castro launched a rebel movement in 1956. While it was initially contained to the Sierra Maestra mountains, Castro's forces slowly gained momentum and successfully seized Havana on Jan. 1, 1959.
Castro's seizure of power led to a drop in Cuba's tourist market-especially from the United States. At its peak in 1957, Cuba attracted 272,265 Americans. By 1960, that number dropped 78 percent to 61,098. The U.S. government crippled Cuba's tourism industry in 1961 when it banned travel there. That year, the number of tourists fell to 4,180.
Rebirth of Tourism
After Castro assumed power, Cuba developed a relationship with the Soviet Union that was based on more than just shared ideology. The communist superpower bolstered the island's economy by supporting its sugar industry with large subsidies. That dependence ultimately had a devastating impact when the Soviet empire dissolved in the early 1990s, throwing Cuba into an economic depression.
Abandoning some of its socialist policies, the Cuban government decided to turn back to tourism to regenerate its economy. The investment paid off. From 1990 to 2000, the number of rooms grew from 12,000 to 35,000, and by 1995, tourism surpassed sugar as Cuba's chief earner. According to the World Travel & Tourism Council's 2006 report on Cuba,"Travel & Tourism is a high-growth activity, which is forecast to increase its total economic activity by 4.2 percent per annum worldwide in real terms over the next 10 years."
But travelers to Cuba should not expect the glitz and glam of the 1950s, when A-list guests such as Ernest Hemingway, Frank Sinatra and Ava Gardner graced the grounds of the Hotel Nacional de Cuba.
"The reason it's attractive to European [travelers] now is because it's cheap," says Patrick Ford, president of Portsmouth, N.H.-based Lodging Econometrics. "But it's also spartan. If you just love beaches, it's a very good place to go. If you are budget travelers looking for great beaches and you're from Europe, it's very nice."
Some experts compare it to the resort experience in the Dominican Republic."[The hotels and resorts] are mostly three-star all-inclusive properties," says Mark Lunt, a practice leader in Ernst & Young's Hospitality Group in Miami, Fla."If we look at them from a U.S. or international perspective, they are really a three-star property. They are far more generous with their star system than Mobil."
Much of the investment and management of Cuba's hotels today comes from outside the country from companies such as Sol Melia, Accor, Super Clubs and Barcelo. But due to Cuba's economic policies, all of the properties are joint ventures with the government.
Some experts argue that the experience has been less than smooth sailing."It is a very high-risk situation for people, and having an unfriendly political situation, even for Europeans, is looked at as a very high-risk situation," Ford says.
According to Lunt, Cuba's economic policies have hampered development for non-American companies."Right now, what's good for Cuba reigns supreme," he says."Anything regarding profits, deal-making, land ownership, JV agreements, all of those kind of things are done by the state. And typically there's little negotiations. Cuba states the terms, and you take it or leave it."
He adds that the current climate in Cuba makes construction of the four- and five-star properties common on other Caribbean islands next to impossible. One of the main roadblocks to achieving luxury levels is a poor infrastructure."There are a few tourist areas in Havana where the lights still work, and the rest of it is still long lines and infrastructure problems in terms of electricity, roadways and building quality," Lunt says.
Labor policies present another complication."It's hard to get great service when porter to manager are paid the same state wages, of which 90 percent is remitted back to the state," Lunt says."It eliminates any ambition or incentive from employees in that sort of a regime.
"It's also made staffing a sales team for time-share development very difficult because you can't incentivize people with bonuses," he adds."The whole economic structure is difficult, and that all would need to change to be more on an international standard."
Talk of American hotel development in Cuba always includes a lot of"ifs," the biggest being"if it embraces democracy."
"There's no indication from my perspective as I monitor it that it's going to change any time soon," says Ford, who has been watching the country since a visit there five years ago."And there is no indication that it is going to change substantially with the passing of Fidel Castro."
U.S. law has kept hotel executives fairly tight-lipped about possible expansion into Cuba. At the Americas Lodging Investment Summit last January, when asked about the possibility of developing in Cuba, a panel of CEOs from major hotel companies was reluctant to comment. Matt Ouimet, president of Starwood's Hotel Group, finally responded,"First thing you'll see is cruise ships showing up. We don't have the infrastructure for hotels yet."
Lunt agrees that a free Cuba wouldn't transform the country into St. Barts overnight."It would be a long wait-and-see approach," he says."There would be a lot of lawsuits over who owns what and who controls what...And before you can start building hotels, you need significant infrastructure investments of airport, roadway, electricity and clean water supply. The things that make a hotel work need to be fixed before you start building international-standard hotels."
Of course, if the stars aligned and the dust settled, Cuba would be an enticing investment for any U.S. company, experts agree. From its history and culture to, let's face it, its cigars and rum, the island certainly has a draw."There are a lot of good things that would make it extremely competitive," Lunt says,"as soon as it had the ability to do so."
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